Prometheus 6

Fears of a shortage of money available to banks meeting demands for funds by investors as they sold assets prompted the Fed to add $24 billion in reserves to the banking system Thursday.

Responding to fears of a similar credit squeeze in Asia, the Bank of Japan said today that it added 1 trillion yen, or $8.4 billion, to money markets in Tokyo. And the Reserve Bank of Australia said it had lent banks 4.95 billion Australian dollars, or $4.2 billion, its biggest such injection of liquidity since 2003.

Three steep market declines in the past month have begun to raise concerns that deteriorating credit in the United States, rising inflation and higher interest rates are finally starting to end a long period of easy money in global markets.

Stocks Are Volatile After Global Sell-Off
By JEREMY W. PETERS and WAYNE ARNOLD

In a volatile day of trading that followed sharp declines in Asia and Europe, stocks fell sharply on Wall Street early today but closed essentially flat.

The market’s wild swings point to continued concerns about the tightening of credit across the world. But they also indicate optimism among many investors that on balance the global economy will be able to handle higher borrowing costs without significant damage.

The Standard & Poor’s 500-stock index closed up less than a point, at 1,453.64, and the Dow Jones industrial average ended the day down 31.14 points, or 0.2 percent, to 13,239.54.

The ups and downs followed intervention this morning by the Federal Reserve, which said just after trading began on the New York Stock Exchange that it would provide an infusion of cash into financial markets to help keep overnight bank interest rates from fluctuating too wildly. The central bank said it was acting “to facilitate the orderly functioning of financial markets.”

By the end of the day, the Fed had provided $38 billion, its largest injection of liquidity into the system since immediately after the attacks of Sept. 11, 2001.

All three major American indexes fell immediately after the opening bell, and at one point the Dow Jones industrial average was down nearly 200 points, or 1.5 percent. By noon, stocks were on the rebound and the indexes were briefly in positive territory, then declined again.

“There is no one view that is dominating,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. “There are plenty of people who are on either side. I have seen a lot of people saying this is a classic buying opportunity, and I have seen plenty of people saying this is the beginning of the bear market.”

Investor anxiety has been so heightened in recent weeks that days of stability have quickly been shattered by the first emergence of seemingly any and all problems tied to the debt markets. Volatility, as measured by one popular index of options trading, has surged to its highest levels in more than four years, though it remains far lower than it was early this decade and in the late 1990s.

The financial sector of the market has been among the most volatile. Today it was down as much as 1.7 percent and up as much as 1.1 percent before closing little changed.